No Innocent Construction for Accusations of POA Self‑Dealing; Employee Admissions Admissible to Prove Abuse of Qualified Privilege; Estate-Administrator Access Falls Within PIPA’s Good‑Faith Exception

Introduction

In Padma Rao v. J.P. Morgan Chase Bank, N.A., the Seventh Circuit addressed three significant issues spanning jurisdictional, evidentiary, and substantive defamation law. The case arose from communications by a bank employee, Keifer Krause, to a court-appointed estate administrator stating that Dr. Padma Rao—acting under a power of attorney (POA)—had established herself as the payable-on-death (POD) beneficiary on her mother’s accounts. Those communications precipitated allegations of fiduciary fraud against Rao in probate proceedings. The district court dismissed Rao’s Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) claim and later granted summary judgment to Chase on defamation per se. On appeal, the Seventh Circuit:

secured diversity jurisdiction by dismissing the non-diverse employee defendant on appeal;
affirmed dismissal of the ICFA claim predicated on the Personal Information Protection Act (PIPA), holding that disclosure of account records to an estate administrator was within PIPA’s good-faith ambit and therefore not “unauthorized access”;
reversed summary judgment on defamation per se, holding that Krause’s statements were not capable of an innocent construction and that a jury could find abuse of qualified privilege—relying, critically, on the admissibility of bank-employee statements as party-opponent admissions.

The decision clarifies Illinois defamation doctrine on innocent construction, delineates when qualified privilege becomes a jury issue due to reckless investigation, and provides a practical evidentiary roadmap for using internal-employee statements to defeat summary judgment. It also confirms that PIPA’s “good faith” carveout can protect disclosures to estate administrators.

Summary of the Judgment

The Seventh Circuit issued a split outcome:

Jurisdiction: The court granted Rao’s unopposed motion to dismiss Krause (an Illinois citizen) from the appeal to preserve complete diversity, exercising its power under Newman-Green and Howell. It did not adopt or reject “snap removal,” and it did not reach the fraudulent joinder argument.
ICFA/PIPA: The court affirmed dismissal. Chase’s disclosure of unredacted 2013 signature cards to the estate administrator was not “unauthorized access” under PIPA because it fell within PIPA’s good-faith exception for legitimate business purposes, and hence could not support ICFA liability.
Defamation per se: The court reversed summary judgment for Chase. Krause’s statements (that the POD designations were “established” in 2013 “with the use of the POA”) could not be innocently construed; they naturally conveyed that Rao improperly used her POA to self-designate—a potential criminal/fiduciary breach. Although qualified privilege applied to the bank–administrator communications, Rao’s affidavit (recounting statements of bank employees about policy and the location of 2012 documents) was admissible as party-opponent admissions under Rule 801(d)(2)(D), creating triable issues on abuse of privilege via reckless investigation.

Detailed Analysis

1) Precedents Cited and Their Role

Jurisdictional authorities:
- Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826 (1989), and Howell ex rel. Goerdt v. Tribune Entertainment Co., 106 F.3d 215 (7th Cir. 1997): The court relied on these to drop a nondiverse, unnecessary party on appeal to restore complete diversity even if it was lacking below.
- Forum defendant rule and “snap removal” context: 28 U.S.C. § 1441(b)(2). The Seventh Circuit again declined to adopt or reject snap removal (noting a split among circuits and among N.D. Ill. district courts), but cured jurisdiction by dismissing Krause.
Defamation doctrine (Illinois):
- Tuite v. Corbitt, 866 N.E.2d 114 (Ill. 2006) and Chapski v. Copley Press, 442 N.E.2d 195 (Ill. 1982): Framework for defamation per se and the innocent construction rule; courts assess the natural and obvious meaning of the words from a reasonable reader’s perspective, resolving the threshold innocent-construction question as a matter of law.
- Muzikowski v. Paramount Pictures Corp., 477 F.3d 899 (7th Cir. 2007): If two reasonable readings exist—one defamatory, one innocent—the innocent reading prevails. Here, the court found no reasonable innocent reading.
- Solaia Tech., LLC v. Specialty Publ. Co., 852 N.E.2d 825 (Ill. 2006) and Dent v. Constellation NewEnergy, Inc., 2022 IL 126795: Qualified privilege exists to protect good-faith communications, but can be lost through abuse (e.g., reckless investigation).
- Kuwik v. Starmark Star Marketing & Admin., Inc., 619 N.E.2d 129 (Ill. 1993): Abuse of qualified privilege includes failing to properly investigate the truth, overbroad publication, and lack of limitation to proper occasions. The court used this to send privilege abuse to a jury.
Evidence/Admissions:
- Makowski v. SmithAmundsen LLC, 662 F.3d 818 (7th Cir. 2011): Employee statements can be admissions of a party opponent (Rule 801(d)(2)(D)) if made within the scope of their employment; applied here to admit bank-employee statements.
- Haywood v. Lucent Techs., Inc., 323 F.3d 524 (7th Cir. 2003) and Schindler v. Seiler, 474 F.3d 1008 (7th Cir. 2007): Distinguished. Those cases excluded testimony where the plaintiff offered multi-layer hearsay to prove the ultimate defamatory statements. In Rao, the bank-employee statements were not offered to prove what Krause said, but to show recklessness in his investigation and the existence of bank policy and available documents—squarely within Rule 801(d)(2)(D).
Substantive backdrop: fiduciary misuse of POA:
- Garner v. Garner, 2022 IL App (3d) 200142-U; 720 ILCS 5/17-56; People v. Bailey, 948 N.E.2d 690 (Ill. App. Ct. 2011): Using a POA to self-enrich can constitute breach of fiduciary duty and even criminal exploitation. This context made Krause’s statements classically defamatory per se (imputing criminality).
ICFA/PIPA:
- 815 ILCS 505/2 (ICFA) and 815 ILCS 530/20, 530/45, 530/5 (PIPA): The court held that providing account documents to an estate administrator to identify beneficiaries is a legitimate business purpose within PIPA’s good-faith exception, defeating the “unauthorized access” predicate for ICFA.
- Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012): Restated ICFA elements (deceptive/unfair practice, intent, trade or commerce, proximate cause). Without a PIPA violation, Rao’s ICFA theory failed.
Law-of-the-case:
- Galvan v. Norberg, 678 F.3d 581 (7th Cir. 2012) and Cameo Convalescent Ctr., Inc. v. Percy, 800 F.2d 108 (7th Cir. 1986): An interlocutory denial of a motion to dismiss does not bar a later judge from revisiting issues (e.g., innocent construction) at summary judgment on a fuller record.

2) The Court’s Legal Reasoning

a) Jurisdiction and Snap Removal

Because Chase removed before service (“snap removal”), the case included a non-diverse forum defendant (Krause) and complete diversity was lacking. The court reiterated that diversity is determined at filing, not service, and exercised its discretionary power to dismiss Krause on appeal to preserve jurisdiction. This avoided re-litigation and preserved judicial economy. The Seventh Circuit again declined to weigh in on the propriety of snap removal itself.

b) Defamation per se and the Innocent Construction Rule

The statements at issue—Krause’s repeated assertions that the POD designations were “established” in 2013 “by Padma” “as the agent of the POA” or “with the use of the POA”—carry a natural, obvious meaning: Rao used her POA to set up the designation. The court rejected Chase’s effort to re-interpret “establish” as “show,” emphasizing that words are read as used and understood by a reasonable listener. The “POA” phrase would be nonsensical if “establish” merely meant “show.” Because the only reasonable reading implied unlawful self-dealing (imputing a crime and fiduciary breach), the statements were defamatory per se and not subject to an innocent construction defense.

c) Qualified Privilege and Abuse

Communications from a bank to an estate administrator are typically within a qualified privilege. But the privilege can be abused through reckless investigation. The court held Rao created a triable issue on abuse based on:

Bank policy (as recounted by Chase employees) that a POA holder cannot create a new POD designation—i.e., Krause should have known the premise he conveyed was inconsistent with policy;
The availability of 2012 signature cards (which colleagues found) showing that Rao’s mother, not Rao acting under POA in 2013, made the designation;
Krause’s failure to locate those records during multiple meetings or to consult the employee whose name appeared on the 2013 cards.

The court thus reversed summary judgment so a jury could decide whether the privilege was abused via reckless disregard of Rao’s rights and the truth of the matter.

d) Admissibility of Employee Statements (Rule 801(d)(2)(D))

The district court excluded Rao’s affidavit as “double hearsay.” The Seventh Circuit held this was error. Statements by Chase employees (Galvan, Berger, Sivarajan) regarding bank policy and record availability were admissible as admissions of a party opponent because they were made by agents on matters within the scope of their employment. Unlike in Haywood and Schindler, Rao did not offer the statements to prove what Krause had said (the ultimate defamatory content) but to show Krause’s recklessness and the existence of policy and records—precisely the kind of use permitted by Makowski. This evidentiary ruling was pivotal because it supplied the factual basis to send privilege abuse to the jury.

e) ICFA/PIPA

Rao’s consumer-fraud theory failed because PIPA’s good-faith exception covered Chase’s disclosure to the estate administrator for the legitimate purpose of ascertaining beneficiaries. The court stressed that estate administration is a legitimate process for identifying beneficiaries and settling an estate. Even if later public filings disclosed personal information, that separate issue did not transform the bank’s original disclosure into an “unauthorized access” under PIPA.

3) Impact and Practical Implications

Defamation exposure for financial institutions: Banks and trust officers assisting probate administrators must accurately characterize the provenance of beneficiary designations. Statements implying that a POA agent self-designated a POD beneficiary are naturally defamatory per se under Illinois law. Internal policy and record audits should precede communications with third parties.
Evidence strategy in defamation litigation: Plaintiffs can use affidavits recounting statements by relevant employees as non-hearsay admissions under Rule 801(d)(2)(D) to demonstrate reckless investigation and defeat summary judgment on qualified privilege.
Qualified privilege is not a safe harbor: Where a defendant fails to investigate readily available records or ignores internal policy that would have dispelled a defamatory implication, a jury may find abuse of privilege.
PIPA/ICFA boundaries: Disclosures to estate fiduciaries for beneficiary identification ordinarily fall within PIPA’s good-faith exception. Consumer-fraud claims grounded solely on such disclosures will be difficult to sustain absent allegations of illegitimate purpose or further unauthorized dissemination attributable to the data collector.
Procedural guidance on jurisdiction: Appellate courts may cure diversity defects by dismissing non-essential parties even after snap removal created an awkward posture. Litigants should still address forum-defendant complications early to avoid uncertainty and motion practice on appeal.
Law-of-the-case flexibility: Interlocutory rulings (e.g., motion to dismiss denials) do not bar revisitation at summary judgment when the record develops. Parties should re-raise defenses with new evidentiary support.

Complex Concepts Simplified

Defamation per se: Some statements are so obviously harmful to reputation that injury is presumed (e.g., imputing a crime). No need to prove special damages.
Innocent construction rule (Illinois): If a statement reasonably supports both a defamatory and an innocent meaning, courts must adopt the innocent one and dismiss. But if the only reasonable reading is defamatory, the case proceeds.
Qualified privilege: Certain communications made to protect a shared interest (e.g., bank-to-estate administrator) are protected unless abused. Abuse includes recklessly failing to check facts or over-sharing.
Rule 801(d)(2)(D) admissions: A company’s employees’ statements on work matters are not hearsay when offered against the company. Affidavits can recount those statements if they stay within that scope.
PIPA’s good-faith exception: Illinois PIPA does not treat as a “breach” a good-faith acquisition of personal data by an employee or agent for a legitimate business purpose, if not used for unrelated purposes or further unauthorized disclosure.
POA vs. POD: A power of attorney (POA) authorizes an agent to act for a principal; a payable-on-death (POD) designation names who receives an account upon death. Bank policy (and fiduciary law) typically forbids a POA agent from creating a new POD in favor of herself.
Snap removal and forum defendant rule: The forum defendant rule normally bars removal if an in-state defendant is properly joined and served. “Snap removal” is the tactic of removing before service to avoid the rule. The Seventh Circuit has not endorsed or rejected it, and cured the jurisdictional problem here by dropping the non-diverse defendant on appeal.

Conclusion

Padma Rao delivers three enduring messages. First, in Illinois, statements asserting that a POA agent “established” her own POD status naturally imply fiduciary wrongdoing and are not subject to an innocent construction. Second, qualified privilege does not immunize negligent or reckless bank communications; where internal policy and key records are at hand, a failure to investigate can constitute abuse—especially when employees’ statements are admissible as party-opponent admissions. Third, PIPA’s good-faith exception shields legitimate disclosures to estate administrators, undermining ICFA theories premised on “unauthorized access” in that setting.

Procedurally, the court reaffirmed its authority to preserve diversity jurisdiction by dismissing a non-essential, non-diverse defendant on appeal, sidestepping unresolved debates over snap removal. Substantively and evidentially, the opinion sharpens the tools and guardrails for defamation litigation involving fiduciary contexts and institutional speakers. On remand, a jury will decide whether Krause’s statements were understood as defamatory and whether any privilege was abused. The decision is a cautionary tale for financial institutions and a practical guide for litigants on how to marshal internal policy and employee knowledge to prove or defeat reckless disregard.